Energy and the Law of Large Proportions

How do we conserve energy in the United States? That question has become more urgent in light of events in the Middle East, the brief gasoline shocks from Hurricane Katrina, and the new attention being given to Peak Oil. It is not uncommon for people to call for greater investments in public transportation--James Howard Kunstler , for instance, regularly calls for massive rebuilding of the passenger rail system. (Disclosure: I think Kunstler is overly pessimistic and a bit of a crank, and I have said so here). Others have called for a government-funded "Manhattan Project" that will free us from our need for fossil fuels.

I don't think either of these methods are very promising. I'll talk about the Manhattan Project idea first. First, this is a misplaced analogy: the Manhattan Project had a very specific end product, and more importantly it had only a single customer. The scientists involved were told to build a bomb for the US government, on the understanding that the government would then use the bomb.

American energy consumption is an entirely different situation, because there is no single client for alternative energy. Energy use is "nonpoint"--it is an accumulation of millions of individuals' decisions to drive, heat their homes, leave their lights on, etc. So a Manhattan Project to say, create a workable hydrogen transport system--assuming such a thing is possible (and it may not be)--would not have the benefit of a single client who has already agreed to use it. The danger always exists that the technology would come on line and no one would use it. If American energy use were concentrated entirely in one centralized place (like its use of atomic bombs) an energy Manhattan Project might be worthwhile. But our energy use is diffuse--and for that reason our solutions should be as well.

The other danger with a Manhattan Project is, of course, that we might fund the wrong thing. The Manhattan Project was a gamble that paid off (in some respects, at least); we assumed we could build a working bomb and it turned out that we were right. But the government is not always so good at picking winners. Look at the recent energy and transportation bills that Congress just belched out: massive subsidies and tax breaks to established industries, and virtually nothing in the way of research and innovation. It would be easy to chalk this up to having an oilman in the White House, but it would also be wrong. Congress wrote those bills, not the Administration, and Congress--regardless of who is in power--tends to get captured by established industries. Future industries don't have lobbyists.

So what about public transportation? Should we plow money into passenger rail, or some other form of transit? I'm sympathetic to the argument that many transit agencies are underfunded (although many just plain waste money) but the idea that new transit investments are going to reduce energy use is misguided, for two reasons. The first is the "Manhattan Project" reason I cited above: you can build a train, but you can't make people ride it. Right now public transportation accounts for a measly 1.5 percent of all vehicle trips in the United States. People, right or wrong, don't seem to like transit, and money poured into it could easily be money wasted (for the record, I am a regular transit user: I ride the bus to work every day, and chose live near one of Los Angeles's few subway stations).

The second reason, which is related to the first, is the Law of Large Proportions. Originally expounded by the economist Charles Lave, the Law of Large Proportions basically says that small changes in big things are more important than big changes in small things. So let's say we take public transportation ridership in the United States and, through some massive investments, manage to double, triple or even quintuple it. This would be a spectacular acheivement, but what would mean energy-wise? Public transportation would still account for less than 10 percent of all vehicle trips in the country.

Now, what if we embarked on a program to make people drive less? Driving accounts for over 98 percent of American vehicle trips, and over half of American oil use. This means that a ten percent reduction in driving would be more effective than a 300 or 400 percent increase in public transit use. And a ten percent reduction driving miles is probably much easier to bring about than a 400 percent jump in transit use. Congestion tolls, parking fees, and a higher gas tax would reduce driving, reduce energy use, and--unlike transit investments--raise money. Moreover, because some of the eliminated car trips (but not all of them) would be replaced by transit trips, transit ridership would rise anyway.

Most importantly, however, placing fees and tolls on driving would be a spur to private sector innovation. When the costs of driving rise, so too does the chance to make money by coming up with alternatives to it. Rather than a Manhattan Project, we could have a massive, decentralized competition to come up with alternatives, and the public could choose between the options that are floated.

This is not some libertarian critique I'm making. Government has a role to play in reducing energy use. But that role should primarily be to make driving more expensive, and to align people's incentives away from fuel consumption. Congestion tolls and parking fees work because they place a price on the individual decisions of individual people--whether or not to drive--and it is those individual decisions, cumulatively, that today account for a lot of our energy use. Pouring money into rail transport doesn't do that. It's a risk we can't afford to take.

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